ZIMSEC O Level Commerce Notes: Money and Banking: Bank Loans and Overdrafts
- Are an informal way of borrowing money.
- They are given to current account holders only.
- Are a short term form of borrowing.
- Interest is charged daily on the amounts owing.
- The interest rate levied on these amounts is usually high.
- The repayment period is not fixed.
- The repayments are irregular.
- No collateral security is required.
- Are a formal way of borrowing money.
- Interest is charged on the whole amount.
- Collateral security is required from the borrower.
- A loan account is opened for the customer.
- The repayment period is fixed.
- Repayments are done in pre-agreed installments.
- The interest rate is lower than in the case of overdrafts.
- The rate of interest is fixed.
- Information is needed by a bank before granting a loan request.
- The customer’s personal details for example name, address, date of birth, current payslips.
- Amount of loan required.
- Period for which the loan is required.
- Proof of residence.
- Details of previous record with bank or other institutions for credit rating purposes.
- Customer’s current commitment e.g. any other loans currently held.
- ZIMRA Tax returns.
- Purpose of loan.
Procedure in obtaining a loan.
- A customer contacts the bank manager/bank representative.
- The customer is interviewed by the bank manager/representative.
- The customer informs the bank what the purpose of the loan is.
- The customer informs the bank the amount of the loan.
- The customer informs the bank on his/her collateral.
- Examples of items that can be presented as collateral include Motor vehicles,equipment or buildings.
- The customer fills in the application.
- The application is assessed and if it is successful the customer and bank representative sign the agreement forms.
- A loan account in the customer’s name is opened.
- The loan account is credited.
Factors taken into account when assessing the loan application.
- The current economic climate e.g the Government’s coming Fiscal and Monetary Policies.
- Local trading conditions for example any current embargoes/ sanctions.
- Viability, Liquidity and Profitability of the customers proposed project.
- The financial rating or creditworthiness of the customer.
To access notes on the differences between a bank loan and a bank overdraft go to this page.
To access notes on other topics go to the Commerce Notes page.